2009-VIL-455-KER-DT

Equivalent Citation: [2010] 328 ITR 619

KERALA HIGH COURT

Date: 02.04.2009

COMMISSIONER OF INCOME-TAX

Vs

. CHANDRASEKHAR BALAGOPAL

BENCH

             RAMACHANDRAN NAIR C. N., SURENDRA MOHAN K. JJ  

JUDGMENT

C. N. Ramachandran Nair J.-

The Revenue is in appeal before us challenging the order of the Income-tax Appellate Tribunal whereunder they have cancelled the income escaping assessment completed on the respondent under section 147 of the Income-tax Act, 1961, on the ground that the officer has no jurisdiction to make the assessment. We have heard senior standing counsel appearing for the appellant-Revenue and senior counsel Sri Aravind P. Datar appearing for the respondent-assessee.  

2. During the previous year, relevant for the assessment year 2000-01, the respondent-assessee received an income of Rs. 3.9 crores under a restric- tive covenant from a Japanese company which took over the business of an Indian company of which the respondent was the managing director. The assessee initially treated the receipt from the foreign company as his income and paid advance tax of Rs. 63,94,000. Later, the assessee remitted an amount of Rs. 5 lakhs towards self-assessed tax. The taxes so paid are in addition to the payment of tax deducted at source in the assessee's account that is Rs. 63,347. Even though a huge amount towards advance tax and self-assessed tax was paid by the assessee, while filing the return for the assessment year 2000-01 on August 31, 2000 the assessee returned an income of only Rs. 17,79,580 and claimed refund of the tax paid on the receipt from the foreign company that is Rs. 3.9 crores. The Assessing Officer, however, while scrutinising the return noticed an anomalous situation whereby the assessee who, initially conceded the income by pay- ing advance tax, has claimed exemption on the same while filing the return. The Assessing Officer issued intimation under section 143(1)(a) and, thereafter, reopened the assessment and completed the income escaping assessment under section 147 including the amount received from the foreign company as income. According to the assessee, the proceedings stated to have been completed by the Assessing Officer under section 143(1)(a) was not served on him. Even though the assessee challenged the revised assessment in first appeal, the assessee did not take the contention that the reassessment was without jurisdiction. On the merits, the Com- missioner of Income-tax (Appeals) dismissed the appeal. The assessee filed a second appeal before the Tribunal and in the appeal, the assessee raised an additional ground on jurisdiction of the officer to make income escaping assessment under section 147 of the Act. Since the additional ground raised in appeal was only on pure question of law, the Tribunal entertained the additional ground so raised and considered the same and held that the Assessing Officer had not issued intimation to the assessee under section 143(1)(a) of the Act. The Tribunal further noticed that since the assessee had a claim for refund, the officer was bound to issue intimation under sec- tion 143(1)(ii) of the Act, which was not done in this case. According to the Tribunal, since there was no processing of return under section 143(1)(a) the officer was barred from making an income escaping assessment under section 147 of the Act. The Tribunal while deciding the case in favour of the assessee relied on the decision of the Supreme Court in CIT v. Ranchhod- das Karsondas [1959] 36 ITR 569 and that of the Special Bench of the Tribunal in Motorola Inc. v. Deputy CIT [2005] 95 ITD 269 (Delhi) [SB].  

3. Senior counsel appearing for the Revenue contended that the Tribunal went wrong in relying on the decision pertaining to statutory provision before amendment and, according to him, after the amendment to sections 143 and 147 with effect from April 1, 1989, the position of law is changed. Counsel for the appellant relied on the records maintained by the officer and contended that proceeding under section 143(1)(a) was completed, and intimation was also issued to the assessee. He alternatively contended that after the amendment income escaping assessment can be made under section 147 in a case where return was filed and no assessment was made. Senior counsel appearing for the respondent-assessee on the other hand referring to detailed findings in the Tribunal's order contended that the Tribunal itself referred to the entire records of the case and found that the statement of the Assessing Officer in the affidavit filed that intimation was issued to the assessee under section 143(1)(a) was factually incorrect. His contention is that the Assessing Officer without issuing intimation under section 143(1)(a) cannot proceed to make income escaping assessment under section 147 of the Act. He has relied on the findings of the Tribunal and several decisions of the Supreme Court and that of the High Courts referred to in the Tribunal's order.  

4. Since counsel appearing for the Revenue sought to rely on the income escaping assessment under section 147 based on the amended provision, we extract hereunder section 147 after the amendment which is the pro- vision applicable to the relevant assessment year :  

 "147. Income escaping assessment.-If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceed- ings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assess- ment year concerned (hereinafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :  

Provided that where an assessment under sub-section (3) of sec- tion 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.  

Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the fore- going proviso.  

Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :-  

(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ;  

(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; where an assessment has been made, but-  

(c) where an assessment has been made, but-  

(i) income chargeable to tax has been underassessed ; or  

(ii) such income has been assessed at too low a rate ; or  

(iii) such income has been made the subject of excessive relief under this Act ; or  

(iv) excessive loss or depreciation allowance or any other allow- ance under this Act has been computed."  

5. The counsel for the appellant has also relied on the decision of the Supreme Court in Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 and contended that proceedings completed by the Assessing Officer under section 147 are perfectly in order. It is held by the Supreme Court in the above decision that the failure of the officer to make regular assessment under section 143 will not render the Assessing Officer powerless to initiate reassessment proceedings. We notice from the above provision that clause (b) of Explanation 2 to section 147 authorises the Assessing Officer to initiate proceedings under section 147 if in the return filed, the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief. It is expressly provided therein that the failure to make assessment based on return filed does not bar the Assess- ing Officer from initiating proceedings under section 147 based on the materials furnished by the assessee in the return. The purpose of section 147 is, therefore, not only to bring to tax income that has escaped assess- ment but to rope in income that would escape assessment if return is accepted and assessment made based on it. In other words, income escap- ing assessment can be made after assessment or without assessment. In this case, the Assessing Officer while scrutinising the return filed by the assessee noticed that the assessee though paid a huge amount of Rs.63,94,000 towards advance tax and Rs. 5,00,000 towards self-assessed tax, has claimed complete exemption on the income on which advance tax was paid, and claimed massive refund. By virtue of clause (b) of Explana- tion 2 to section 147, if the Assessing Officer in the course of scrutiny of the return finds that the assessee has understated the income or has claimed excessive loss, deduction, allowance or other relief, in the return the Assessing Officer is free to initiate income escaping assessment under section 147, no matter the assessment based on original return is not com- pleted either through proceedings under section 143(1)(a) or through regular assessment under section 143(3) of the Act. In view of our above finding, income escaping assessment can be made under the amended provisions of the Act based on the return filed by the assessee, pending for assessment. Therefore, there is no need for us to consider the records relied on by the appellant to find out whether the Tribunal was justified on facts in holding that no proceedings under section 143(1)(a) of the Act was com- pleted or served on the assessee. Following the decision of the Supreme Court above referred to and clause (b) of Explanation 2 to section 147, we allow the appeal by reversing the order of the Tribunal and restore the matter to the Tribunal for considering the assessee's claim of exemption in the appeal on the merits.  

 

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